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Posts tagged ‘Labrador Iron Mines Holdings Limited (LIM)’

Both interventionist and capitalist, the province’s mining-friendly policies defy ideology

by Greg Klein

Quebec’s provincial government might buy rail and port facilities that serve Bloom Lake, as well as invest taxpayers’ money in the iron ore mine. Economy Minister Jacques Daoust didn’t commit to anything, but Bloomberg reported he’s open to the idea. Even that shows Quebec’s distinctive approach to mining, a strategy that eludes political stereotypes but suggests long-term vision based on confidence that commodities markets will improve.

Making that confidence all the more remarkable is the iron ore collapse which shut down so much Labrador Trough activity. Rio Tinto NYE:RIO so far shows no sign of relenting on its price-slashing tactics, although Axis of Iron fellow travellers BHP Billiton NYE:BHP and Vale NYE:VALE are reportedly backing off.

But not after driving prices down and mines out of business. Some of the casualties have littered both the Quebec and Newfoundland sides of the Trough. Last year Labrador Iron Mines TSX:LIM didn’t bother resuming seasonal operations at Schefferfield. Later that year Cliffs Natural Resources announced impending closures of its Wabush and Bloom Lake mines. Then the Iron Ore Company of Canada announced plans to lay off part of its Labrador City workforce, in keeping with majority-owner Rio’s cost-cutting craze. But at least the mine’s surviving, as is ArcelorMittal’s Mont-Wright operation, although that company has alluded to some kind of future “restructuring.”

Cliffs’ exit from eastern Canada will “end the flawed expansion that has cost Cliffs and its shareholders billions of dollars,” president/CEO Lourenco Goncalves said in January. Handed the job after activist hedge fund Casablanca Capital gained control of Cliffs’ board, Goncalves takes a dim view of other operations as well.

“I can’t wait to get out of Australia,” the Sydney Morning Herald quoted him last month. “As soon as I get to the end of life of mine in Australia, I’m out of there … I can’t wait to get out of the seaborne trade and let the Australians take that horrible business on their own hands.”

Yet Bloom Lake, with “its high-quality ore,” still has hope, Goncalves suggested back in January. But “the potential investment is not achievable within a time frame acceptable to Cliffs.” Talks with Investissement Québec had already been underway for several months, he stated.

A government-run investment and financing agency, Investissement Québec’s subsidiary Ressources Québec has taken positions that include, for example, nearly $600,000 in an April private placement with Quest Rare Minerals TSX:QRM. A $3-million injection into Matamec Explorations TSXV:MAT last January brought Ressources Québec a 28% interest and joint venture partnership in the Kipawa rare earths deposit.

A much bigger Investissement Québec outlay was the $50-million stake in an estimated $118-million plan to increase Gaz Métro’s liquefied natural gas production. The government sees Plan Nord synergies, with the LNG fuelling transportation and operations in remote areas.

Quebec government investment is hardly new, although the previous Parti Québécois government shelved some resource-friendly policies.

I am not in a subsidy mode, I am in a partnership mode.—Quebec Economy Minister Jacques Daoust, quoted in the Montreal Gazette

Now a branch of Ressources Québec but dating back to 1965, SOQUEM Inc has participated in over 350 Quebec exploration projects. Among its success stories is Renard, where Stornoway Diamond TSX:SWY plans 2017 production. In 2011 the company issued shares to acquire the 50% held by a SOQUEM subsidiary.

Outside of equity investments, Quebec last month announced $1.3 billion in government spending for Plan Nord over five years, part of an envisioned $50 billion to come from public and private sources for infrastructure and project development over 20 years.

It’s not a program to put off, the province maintains. As Energy and Natural Resources Minister Pierre Arcand told Canadian Press in December, Quebec “cannot wait until there is a mining boom and everything becomes uncontrollable.”

Quebec’s Bloom Lake investment, should it happen, could reach 20% of the operation, Bloomberg reported. “We’re trying to ensure the survival of the mine,” the news agency quoted Daoust. “If the last 20% is a problem, I will fix it.”

Last month the Montreal Gazette quoted him, “In a [typical] mining project, the bill is at least $1 billion. The problem you have in a mining project is financing the last 10%. If we invest $100 million in a mining project worth $1 billion we’re okay and we can close the deal…. We can go up to $200 million, but normally we should not invest more than 10 or 15%.”

Daoust added, “The kind of return we would get is the same as for any other shareholder. I am not in a subsidy mode, I am in a partnership mode.”

Government ownership of Bloom Lake’s rail link and port facilities, however, could lower the mine’s operating costs by as much as $20 a ton, he told Bloomberg.

Regardless, policies like these have helped raise the province’s once-faltering reputation. As a mining jurisdiction the province leaped from 18th place globally to number six on the Fraser Institute’s Investment Attractiveness Index, part of the annual survey of mining companies released in February.

Quebec’s policies aren’t without controversy, though. Following the April announcement of a scaled-down Plan Nord, the Parti Québécois opposition noted that Ressources Québec planned to guarantee a $100-million mortgage for the Nunavik nickel mine, held by Jilin Jien Nickel Industry Co. As reported by the Nunatsiaq News, the opposition pointed out that Quebec Premier Philippe Couillard formerly held a board position with project operator Canadian Royalties, which was acquired by Jilin Jien in 2010.

And there’s further controversy from another angle. In December Strateco Resources TSX:RSC launched a nearly $190-million lawsuit after Quebec refused to issue an exploration permit for the company’s Matoush uranium project. With a moratorium on uranium activity now in place, the province is considering an outright ban.

Champion Iron Mines steps back from its Labrador Trough rail proposal

Another transportation setback has highlighted the challenges of reaching Canada’s resource-rich hinterlands. Champion Iron Mines TSX:CHM announced July 2 it had terminated an agreement to use facilities at the deep-sea port of Sept-Iles, Quebec. The decision saved the company a $25.6-million payment due to the port by July 1. But it places further uncertainty on transportation proposals to the Labrador Trough straddling northern Quebec and Labrador. The news followed a June 12 announcement that Cliffs Natural Resources was suspending its Ontario chromite project and, along with it, a province-backed road proposal for the Ring of Fire. In February CN TSX:CNR stated it had suspended its feasibility study on an estimated $5-billion, 800-kilometre Quebec rail line to the Trough.

Champion attributed its decision to a failure to gain private and public backing for a new railway. Estimated at $1.33 billion in the company’s February pre-feasibility report for the Consolidated Fire Lake North iron ore project, the 310-kilometre line would connect the southern Trough with Sept-Isles, on the St. Lawrence River’s north shore. The company studied the project despite the fact that Champion had already signed a collaboration framework agreement backing CN’s proposal.

One of two existing railways in the Trough, the Quebec North Shore and Labrador line runs a 418-kilometre route between Labrador City and Sept-Isles.

Champion reverted to Plan A following CN’s February decision. Discussions resumed with private and public interests to finance, build and operate a multi-user railway. But they failed to make progress by the July 1 payment deadline.

Of course market conditions played their role. Iron ore prices have been falling since a February high of about $154 per dry metric tonne. The following month the Melbourne Herald Sun reported that Rio Tinto chief economist Vivek Tulpule expected prices to fall to nearly $100 by September 2014. On June 24, however, Platts quoted Macquarie bank analysts who spoke of a potential recovery later this year. A July 2 report from China’s Xinhua news service stated, “Although there might be fluctuations, prices of iron ore imports will see a falling trend in the longer term.”

“The past year has been a very challenging period for iron ore developers,” conceded Champion president/CEO Tom Larsen in his July 2 statement. But he emphasized the company remains committed to its flagship and to “securing transportation and port-handling services that will permit the company to place among the lowest-cost iron producers in the Labrador Trough.”

Even without Champion’s proposed railway, the region benefits from mines, plants, power and two existing rail lines. The Iron Ore Company of Canada owns and operates the Quebec North Shore and Labrador route, which connects its Labrador City facility in the southern Trough to Sept-Isles, 418 kilometres away. As a common carrier, the QNSL is required to ship other companies’ goods as well.

An ArcelorMittal subsidiary runs a private carrier called the Cartier Railway from the company’s Mont-Wright operation, 40 kilometres southwest of Labrador City, to Sept-Isles.

Iron ore prices notwithstanding, Asian investment in the Trough has continued. Chinese companies are said to be looking at Rio’s 58.7% interest in the Iron Ore Company of Canada, of which Mitsubishi holds another 26.2%. The Anglo-Australian giant reportedly wants to sell its stake for up to $4 billion.

Cap-Ex Could Be Canada’s Next Major Iron Ore Player

By Ted Niles

Brian Penney has no doubt Cap-Ex Ventures TSXV:CEV will be the company to take the Block 103 iron property to production. Indeed it is for this very purpose that the Chairman of Operations was brought to the project in December 2011—when Cap-Ex entered into a management agreement with merchant bank Forbes & Manhattan. An alumnus of the Iron Ore Company of Canada (a subsidiary of Rio Tinto), Penney says, “That’s the expertise I bring to this picture.”

Penney continues, “I’m a metallurgist, and my whole career has been on the operating side of iron ore rather than the exploration side. That’s one of the reasons why Cap-Ex joined with Forbes & Manhattan. I am myself a Forbes employee. We understand the blueprint in terms of removing the risk to allow us to get to production, and that’s what we’re here to do.”

Besides Penney, the arrangement with Forbes saw François Laurin appointed President and CEO. As the CFO of Consolidated Thompson Iron Mines—itself a Forbes company—Laurin helped develop from scratch the Bloom Lake Iron Ore Mine which, like Cap-Ex’s Block 103, is located in northern Quebec’s Labrador Trough. It was for Bloom Lake that Cliffs Natural Resources acquired Consolidated Thompson in January 2011 for $4.9 billion, and Cap-Ex also hopes to succeed in the region. “The group that led the 2011 program [at Block 103] did a very good job recognizing the potential and staking the claims that they have,” Penney notes. “[But] from a resource perspective and the requirements to get into production, I think they realized that they needed some help at this stage because of the immensity of the project. That’s where Forbes can bring their expertise.”

The Labrador Trough extends through northern Quebec and Labrador and produces 99% of Canada’s iron ore. The 7,175-hectare Block 103 property is located 30 kilometres northwest of the town of Schefferville, Quebec. While the property does not yet have a resource estimate, it finds itself strategically situated between the LabMag and KéMag deposits currently being developed by New Millennium TSX:NML in joint venture with Tata Steel Limited—the 10th largest steel producer in the world. With a feasibility study underway, the LabMag deposit has measured and indicated resources of 4.59 billion tonnes grading 29.45% iron and 1.15 billion tonnes at 29.32% inferred; KéMag has 2.45 billion tonnes at 31.27% measured and indicated and 1.01 billion tonnes at 31.15% inferred.

Penney comments, “New Millennium seems to think there’s a mineralization zone extending between KéMag and LabMag, and if so—and this is supported by our drill holes in the area as well—it will run right through Block 103. Based on the magnetic signature, based on the history, and based on the geology in the area, we think the possibilities for Block 103 are limitless. I’ve seen enough iron ore to know that there’s plenty there.”

Cap-Ex undertook a 6,000-metre drill campaign in 2011; February 7 results from the Northwest zone include

30.6% iron over 148.4 metres

31% iron over 118.9 metres

31.5% iron over 91.4 metres

January 26 assays of the Greenbrush zone include

30.9% iron over 204.2 metres

29.9% iron over 194.2 metres

30.3% iron over 128 metres

30.1% iron over 152.4 metres

Penney remarks, “The assays are consistent with almost every assay we’ve put out to date, which is very positive for Block 103. The grades are fairly consistent with New Millennium’s results from a magnetite deposit—pretty typical 30% iron, delivering the Davis Tube quality concentrate at 68% iron. We were going approximately 200 metres from surface, and at times the drill holes ended in mineralization. It’s just an indication of how much potential resource is there.”

Based on the magnetic signature, based on the history, and based on the geology in the area, we think the possibilities for Block 103 are limitless. I’ve seen enough iron ore to know that there’s plenty there —Brian Penney

Given the size of the project, Cap-Ex finds itself with an enviable problem. “The question is, how big is big enough?” Penney says. “Block 103 is 18 kilometres long and 9 kilometres wide, so if we want to drill the entire extent, even at an inferred level, we will be many years doing so.” Cap-Ex has planned a 15,000- to 20,000-metre drill program for 2012, to begin mid-May, and it will focus on the Northwest and Greenbrush zones. The company’s maiden resource estimate will be based on the Greenbrush drilling and is expected to be released 4Q 2012. Penney reports that to mitigate the problem posed by the property’s size, “What we’re also doing in 2012 is bringing on the engineering program. We’ll commence that within the next month or two, and that will really detail the timeline to production. We hope by the end of 1Q 2013 to issue our preliminary economic assessment.”

Cap-Ex will also conduct a 5,000-metre drill campaign this year at its Redmond property, located 10 kilometres south of Schefferville and on strike with Labrador Iron Mines’ TSX:LIM property of the same name. Labrador Iron Mines’ Redmond deposits produced, during the 1970s and early 1980s, roughly 35 million tonnes of direct shipping ore (DSO) grading between 52% and 54% iron.

Formerly a mining town, Schefferville ceased operations in 1982, and while it has rail access to the Port of Sept-Îles, Penney acknowledges that significant infrastructural improvements will be necessary. However, between the advantages of Quebec’s abundant and cheap hydro power, federal investment in a new deep-water port at Sept-Îles and the Quebec government’s $80-billion Plan Nord infrastructure development program Penney declares that Quebec is “quite possibly the best province in Canada from a resource development perspective.”

He concludes, “I’m very excited about 2012. It’s going to be a big year for Cap-Ex. And in 1Q 2013, with our PEA release and our maiden resource, you’re going to see [our] market cap increase significantly. I think we’re going to prove up a deposit that will be comparable to New Millennium’s.”

At press time, Cap-Ex had 57 million shares trading at $1.09 per share for a market cap of $62.1 million. In January, it closed a $10.2-million private placement. The company’s other projects in the Labrador Trough are Lac Connelly, Redmond, Porky Lake and Snelgrove.